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Options Trading Facts
An often used method of trading stocks, currencies, or futures is online options trading. By trading options, a trader limits his or her risk and exercises a degree of leverage as well. Traders use both fundamental and technical analysis to gain insight into the equities that underlie the options contracts that they trade. There are a number of potentially profitable options strategies but one must learn the basics before moving on to more complicated things in options trading. With that thought in mind here are a few basic options trading facts.
Options Trading Facts I
An options contract is a financial instrument that conveys to the buyer the right to buy or sell a stock, futures contract, or currency at a set price, called the strike price. This price remains stable no matter what the market price of the underlying equity does. Thus the value of an options contract rises or falls based upon the difference between the equity price upon which the contract was based and the current price, known as the spot price. Options contracts also have what is referred to as time value. If, for example, a stock is rising and an options contract on that stock has a long time to run, the contract will commonly be more valuable as speculators believe that the options contract will become more valuable with time. When there are only few days left until expiration of an options contract, its time value becomes negligible as there is little time left for the price to rise.